Chapter 5: Income and Substitution Effects

2 are normal goods Quantity of x 1 Quantity of x 2 C U 3 B U 2 A U 1 As income rises, the individual chooses to consume more x 1 and x 2. 6 Increase in Income ... 1 if normal/inferior. 15 Substitution Effect U 1 Quantity of x 1 Quantity of x 2 A Let’s forget that with a fall in price we can move to a higher indifference curve. ................
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